fuboTV Inc. (FUBO) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the fuboTV investor conference call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Dan Salmon. Sir, the floor is yours.

All right. Good afternoon, everyone, and a good Friday afternoon, which is always the best afternoon. Thanks for catching the tail end of your week with us. And we're going to dive in here shortly. We're going to talk a lot about streaming, connected TV and of course, the company run by our guests here, David Gandler, the CEO of fuboTV. David, why don't you just give us a 30-second background on you and the company, and then, we'll dive into some questions.

Sure. First of all, thank you for having me. I'm very excited to join you today. But before we start, I just want to remind you that during our discussion today, we will make forward-looking statements concerning events and trends that may affect our industry or our company and actual results may be materially different. So my name is David Gandler. I'm the CEO of fuboTV. fuboTV is a sports-first cable replacement product. What that essentially means is that we carry the live television cable lineup that a traditional television platform such as Comcast or Charter, would carry. We carry that over the top. And it combines 20,000 to 25,000 VOD assets along with over 100 live channels and 690 local broadcast television stations.

Fantastic. And I can see you're getting used to the public company routine by making...

Yes. I've been told many times, please do not forget. I said, "Okay, I promise." But I'm a data guy, so I like to provide data and that's why it's important.

Good. Well, you just perked up the years of most of the listeners on here because they love data too. So well, listen, I want to get to the specifics of your business shortly, but I thought maybe we could start with a few high-level questions and comments about the industry. Just for those who are a little bit more familiar with some of the related stocks in the space, like a Roku or a WWE, let alone a Disney or a Netflix and just stocks that have obviously been in the public market longer that this group might know a little bit better to help them ease into the Fubo story. And I would say there are really 2 big topics that I've been asked about lately as far as it relates to your company and your space. The first is the growth of audience for streaming and connected TV platforms due to COVID, stay-at-home behavior, the loss of the box office, a host of other reasons. Maybe could we start there and your views on how audiences have shifted in the short term? And how much of this new viewership you think will stick even after sort of out-of-home life returns to normal?

Yes. So it's -- I think it's apparent that people are spending a lot more time watching -- I was going to say television, but streaming services because it's -- you're spending time in home. Many of us are camp counselors this summer, school teachers, running errands and trying to sort of work in an environment that has completely been unearthed. And so what we've seen most recently from our numbers is a surge in viewing. And what's interesting about Fubo's platform, as I said in my opening comments, that we're a sports-first cable replacement product. And we finished 2019 with roughly about 125 hours of viewing per month per account. And so with sports sort of leaving the ecosystem somewhere in the first quarter, and only about to sort of start-up again, it was interesting to see that people were actually spending more time on Fubo. So we have, at least in the month of April, seen a surge of roughly about 140 hours. So 20 hours incremental viewing above the end of 2019, which really suggests how much more viewing is taking place for streaming services that are really focused on entertainment across the board. So it's a huge shift for us specifically. But for the marketplace, I don't think anyone could have imagined this level of engagement in the space. In terms of where I think the market shifts going forward. It's a tough question. What I'd like to see and what we'll be looking at very closely is whether we can maintain a much higher level of viewing across our entertainment networks as we've seen in our entertainment content more broadly. And then as sports returns, we would like to see sort of more accretive engagement, whereas it does -- you don't see a diminish in the amount of entertainment hours and news hours viewed. So that's what we'd like to see. I think I'm hard-pressed to believe that this is the new norm. We are social creatures at the core. And I just don't know anyone who doesn't want to go outside and go to a restaurant or spend some time with friends. And I think that it may -- clearly, there will be some of that, that will have shifted and will be part of our new DNA. But it will be interesting to see how far we're able to maintain the current levels, which I think may not be possible. In our case, so what's different is -- as a cable replacement service, I like to triangulate against Nielsen numbers, and so TV viewing and Dan kept me honest here, is in the 300-hour range per household. And so my sense is that this -- the pandemic may have actually helped Fubo become more of a mainstream family product versus just come in and watch the sports, which we've been trying to do over the last 6 to 8 months anyway. So we'll have to see how -- what the changes are. But with all the streaming going on. I think lots of people are talking to their neighbors, their friends. And I think while many consumers may not have switched or they are -- I'm certainly sure that they're thinking about it. And I suspect for the industry more broadly, Q3 is going to really be an eye-opener for the group.

Yes. Yes. Hopefully -- as you noted, beginning to see some of the stay-at-home restrictions start to move off. So it's -- of course, the return of sports is sort of a -- can be a bit of an inflection point in some of these viewership numbers. And this is all going to be a little tricky when you consider that the summer months are usually when TV viewership is at a lower level anyway. But the third quarter, and I think we'll start to see this what has stayed. What of that view -- what does that incremental viewing hours have started to stay and stick permanently? So the second sort of big topic that we get around streaming, and this is especially of late as there's been some headlines around HBO Max's launch and who they're partnered with for distribution or not. But that's the changing among sort of content-oriented players, say, like yourselves or a WWE or a Netflix or a Hulu, the apps, versus those that focus more on distribution, the distribution platforms, more of a Roku or an Amazon. Can you tell us -- take us behind the scenes here a little bit and talk about what -- how does the dialogue stand between those types of players in terms of how you share economics, the types of contractual models you use? And maybe what you're seeing, like I said, sort of broadly in this idea of what have always been the 2 big faction in media, which is basically content versus distribution?

Yes. That is the eternal question. It has been and it will continue to be. I think just stepping a little bit back from where we are, I think for your listeners, it's important to note that this is a one very large Venn diagram. You've got distribution players that are also content players, there are also apps, there are also technology companies. So you are going to have -- you're going to have to be dealing with these companies in sort of in multiple areas. And so it's not very straightforward to say, here's the business model because there could be other services that companies are buying from one another or delivering to be able to make the economics work on certain other area of the business. So for instance, while we might want to pay in that billing fee to some of these platforms, we are also potentially a buyer of advertising. So that's just an example to give your audience that there's give and take. And so I don't know if there's any one way to look at this. It's not as clear-cut as a, here's my price list, here are my services, what would you like to buy? There's no real menu for this. So a lot of these deals are relatively complex and probably cover multiple areas across product lines in these deals. The other thing I'll say is that, again, just to give your audience a sense of kind of how the distribution changes in terms of content and distribution, you could argue that Roku and Fubo are both distributors, right? We have content. We sell content. We provide consumers a way in which to engage with content. But what I always like to do is explain how we differentiate because that's also a very interesting concept. I would say that companies like Roku and Fire TV or Chromecast, those are distribution platforms that are closer to the screen. And they are aggregators of apps. Fubo is on the exact opposite side of the spectrum. And what we do is we are sitting right in front of the customer, and we aggregate content. And we collect consumer data. That is the sort of difference between the 2. And so in terms of relationship with these companies, I think that the battle between content and distribution, I think it's something that has been going on for a very long time, and we always ask the question, is it content? Or is it distribution? For us, as a smaller company that's just now hitting its sort of growth stage. For us, it's important to ensure that there are a significant number of distributors. We've recently announced our partnership with Microsoft and Xbox. There's obviously other relationships that we're developing in the meantime. But the more distributors out there, whether they're TV distributors like the Samsung itself, which has its own platforms or Hisense for which Fubo has a sports partnership with TVs that they will be delivering to stores in the summer, with those announcement made at the CES recently. And so having a number of distributors that are sort of connected device distributors as well as TV manufacturers, the more of these platforms that are available, the better for companies like Fubo to negotiate those deals. So that type of proliferation, particularly in the U.S. is very important. And then as we sort of scale our business internationally, I think that there's more room for us to be more creative in terms of ways to work. But the key is we're a software platform, and we are ubiquitous across all of these devices, which gives us some really good flexibility.

Excellent. And you're right, the content distribution access is always a little bit oversimplified. There's always a group in the middle that do a little bit of both, right? TV networks with in-house studios, things like that. The -- so it's a fair point. Once again, lots of Venn diagrams that overlap and no clear-cut lines all the time. So one more high-level one for you, and obviously, core of your services, subscription fees, as you said, a cable TV replacement. But advertising is an emerging part of your business as well as a digital streaming service, right? Video is going to be your focus, and programmatic tools may be getting more relevant as well. So that's another area we've heard about through the past couple of months of COVID, where, obviously, that increased viewership that we were talking about earlier has been a bit of a magnet for some ad dollars as well to maybe help the connected TV ecosystem hold up a little bit better. But any high-level observations on what you're seeing across the advertising trends in your ecosystem right now?

Yes. So first of all, just on Fubo. Yes, we are a subscription business. I think it's important to note that for those of you -- those in the audience that have -- or are looking to acquire streaming portfolios, I think, it's interesting because Fubo also adds sort of another element to the streaming space. Again, streaming broadly not the SVOD space, which -- because we don't actually participate in that space. But what's interesting is you have the Netflix model, which you know is a subscription model. You have the Spotify model, which is either ads or no ads, meaning you have a freemium model, where one can listen to music with advertising. And then upgrade their subscription to an ad-free experience, which is a subscription-based model. So it's sort of a -- almost like an either/or. And then you have the third model, which is the Roku model, where you get hooked in with this hardware device and then they obviously monetize via advertising. The fourth model, which is the one that we bring to the table, again, obviously, subjectively, I think I'm very bullish on, is a dual revenue stream. It is a subscription with advertising. And that really allows us to drive significant ARPU. And so the ad component of our business is absolutely critical. You should think of it as how Roku's hardware devices, I would assume, is roughly around breakeven or low mid-single digits from a margin perspective. And then all the money they actually begin to make is on the ad side. So we are very similar. We have a basic pack of channels at the very lowest level. And then the -- obviously, there's attachments that we sell both content and service attachments. But then the ad part, it plays a very important role in our ability to continue to expand our margins. And so from an advertising perspective, you're right, the hours have obviously increased significantly during the pandemic. I'm not sure what we, as a company, did not -- were not able to capitalize on that in April because, as you know, I think many agencies, and I think even there have been dozens of large advertisers that are on CNBC saying we have to halt everything because we're not sure what's going on. And so I think there was a 3-week period in April where we saw some significant deterioration in advertising. Obviously, ad inventory, opportunities we're continuing to expand with really very limited fill. That was a 3-week period. We saw some green shoots right before the NFL Draft, and May seems to have recovered very nicely for us. I just -- I don't know if advertisers are just interested in getting ahead of when things start to open up and sort of want to be first to market and be -- take as much mind share as they can for specific product groups. But we've seen a very nice impact from an ad perspective in May. In fact, what's interesting is those levels are -- have exceeded $5 per subscriber. So we're very comfortable with the way things are going. And as sports comes back, I believe we'll go back to seeing some premium CPMs headed into the third and fourth quarter. So it should be from a digital perspective, from a connected TV perspective, more broadly, I think that it's going to be very robust. What's also interesting is that we're also buyers of advertising, as you know. And we're seeing some significant opportunities on the traditional TV side, which we're typically -- we don't buy TV. We're a company that over the last few years has specifically advertised through digital channels in real time, in fact, and manages our acquisition costs very tightly. And we've seen some major opportunities in advertising on the traditional side, both because there's lots of inventory available, and also, we've taken -- taking advantage of decreasing rates. So I think there, when you talk about customer shifts about viewing and streaming, I think those are moving towards the sort of connected TV direction in terms of hours viewed. I mean, again, people will have to start commuting to work, so that should impact the number of hours. But on the business-to-business side, the advertising side, I think you are seeing a structural shift. And if you think about it, it makes sense, companies like Fubo, we collect 21 billion data points a month and growing. And so there's proprietary data that we have. Obviously, we don't know who the individual is by name, but we can match up IDs of phones matched to connected devices and sort of we can build cohorts of people for specific ad campaigns. So you have the proprietary data, you have the premium CPMs associated with connected devices and then you also have the addressability. So that, to me, is a very solid recipe for advertisers starting to move dollars, not starting to, I mean, this has been happening very slowly over time. But I think given the cancellation of the upfront for many of these advertisers, I think, it's going to prove to be a very opportunistic situation for a lot of the connected TV players. But we should be very specific that it's the premium inventory that's going to garner the most value out of this. Because as you know, when you watch an ad on a Tier 3 or Tier 4 website, you don't typically remember the ad that you saw associated with that content. And then I think with sports, in particular, in premium content, that brand value, I think, is quite important.

Yes. No, that's a good point. That's a fair point. And I always appreciate when companies that sell advertising are willing to turn around and share insights into the money they spend on advertising as well because you've got to market your own products, and I've got to imagine a few of your programming partners are happy to hear that you've been dallying on their linear network [indiscernible].

So we'll start nibbling a little bit more.

So it never hurts. So maybe I want to come back to some of the -- so let's just sort of continue to drive through here maybe a little bit on some of the things on the business and maybe now just moving to the sort of vMVPD model, the skinny bundle model, as you say, a cable replacement product. Tell us about your thoughts a little bit on the competitive set that you see here. We've had some players like Sony exit the market. We've had some players like Hulu and YouTube sort of continue to push through and see relatively solid growth. And then we have some players, some digital products from traditional satellite companies, which have run into a little bit more challenges from a subscriber growth perspective lately. When you turn and look around at your most direct competitive set, what do you think some of the most important trends going back and forth are as they relate to your company?

Yes. Very good question. So I do get a lot of questions around how can you compete with Netflix or some of these other groups? It's an important question because we don't compete with them at all, actually. We are a sports-first cable replacement product. We are branded as a sports platform. And I think that is our point of differentiation. We carry content. About 30% of our content, sports content is not available anywhere else. And so when I look at our competitive set, it's on -- it's -- we're actually competing with Charter and Comcast and the satellite guys and the telcos. But if you were to say, where would you -- where do you compete in your digital space? I would say that probably the only 2 competitors are -- would be the YouTube TV and Hulu. That's it. And there's many reasons for that. One is no other services carry nearly as much programming around -- sports programming as they do. So those are sort of the closest. Obviously, we carry more. And so -- but at the end of the day, we're trying to fight for the 84 million customers in the traditional ecosystem, the people that are paying $110 to $175, in some cases, more money. It's the people that have 2, 3, 4 set-top boxes that are paying at $8 per set-top box before they even get started buying any content. And then I think if you think about the competitive set, for us, it's really around sports. We do not compete with SVODs. In fact, we carry content from all of the sort of major media companies, almost all the major media companies today. And my sense is that with the hours viewed, which I mentioned before, exceeding 140 hours most recently, my sense is that if you look very closely at SVOD viewing, it's going to be sub-50 hours. And clearly, Netflix being the largest player, I have to believe that the cost of content will continue to grow just given the level of competition in that space with Prime and Hulu and Netflix and Apple TV now or Apple TV+. And then you have your media companies that are also buying for that type of content. My sense is that ultimately, we're going to come full circle back to the pay TV ecosystem, because it is actually relatively efficient, if you think about it. And I've made a comment before that at the end of -- or within first quarter, the average cost per hour of viewing was roughly about $0.42 and prior to our call, I just took a quick look and just back of the envelope math, I'm now feeling comfortable that we're closer to $0.38 during the pandemic. Now we'll find out shortly, if that's just pandemic related, and then we go down to levels closer to the $0.42. But if you think about that, my rough estimates have Netflix pegged in about $0.20 per content hour. So that, to me, says that despite the variation in price, $13 in the U.S. domestically versus Fubo's base package price, which is $54.99, we are providing a significant amount of value. And if you just look back in history, whether it's 15 years ago or 20 years ago, I think cable was offering -- I think the price per viewing hour was closer to something like $0.06 or $0.07, which if you think about it, was -- that's why you had an explosion of people wanting cable, right? It's -- it was cheap. It was a lot. It was premium. And so I think what will probably happen SVOD versus these live sort of virtual MVPDs, which we play in, is that the cost per hour will continue to decline. And the cost per hour on the entertainment platforms or any niche service, I think, niches could be big because we have -- obviously, lots of people have multiple services. It's not a zero-sum game. I think what will happen is you'll start getting closer to the $0.30 per hour or more on the SVOD services while the virtual MVPDs continue to climb. So I think that ultimately, we're going to be back to the bigger bundle, not the skinnier bundle, which may -- I think, may be a reflection of what you were saying earlier, how some have experienced some difficulties in continuing to maintain specific growth levels. But that's probably because you'll see that content owners will have to continue to increase rates. Right now, they only do that at the wholesale level, but as they move further into the direct-to-consumer space, they will have to do that. And that's going to be very tough to do because you're completely exposed, right? People know exactly what content you have. And also, customers will start feeling more comfortable moving in and out of these services. So there's a -- we're very early in the S-curve. We're at the bottom of a product cycle. Again, we've been -- this is sort of something that's been happening over the last 4 or 5 years. But again, I feel like people are still trying to understand, what is it that I want? And there's lots of folks that are sitting on the sidelines that have cut cable during this pandemic. I think one of the things you mentioned to me off-line was, where did -- what happened to these people? They dropped off. The reality is, this is why I was saying third quarter, I think, is going to be an interesting quarter is those people dropped off because there's no sports. You can get entertainment almost anywhere. And so it will be interesting to see what happens in the third quarter as sports comes back and typically, people start to look at cable packages and streaming packages in the fall. So it will be -- that's kind of where we'll really see what the impact of COVID on streaming, at least on the virtual MVPD side.

Yes. Let's stick with the sports theme, but maybe switch over a little bit on to the programming side. And as you noted, you guys have more sports than others. At the same time, you've made some -- you've had to make some selections about not having it all, and maybe we'll come back to how pricing plays into this. I mean, I'd really like to ask about sort of 2 bundles of products. One is, I think, what's fair to say is the long time, 800-pound gorilla in cable sports, ESPN and Disney. And then second, one that's the set of businesses that have moved ownership lately, the -- what we still call the Fox Regional Sports Networks, but now under the ownership of Sinclair. I don't mean to dial in too much on what -- on the ones that you've either not included or removed lately. But I'd love to hear a little bit about those dynamics how you think about it. And then secondly, sports networks have traditionally -- putting aside the [indiscernible] we've had the broadcast networks where most major playoffs and major national once-a-week games type of things tend to show up there. National sports networks carry a load of sort of featured games as well. And then you've had the regional sports networks that sort of scoop up the rest of that sort of baseball, hockey, NBA-type content. I would love to hear sort of your sort of more broader thoughts on each of those models and how those different types of programming partners play into your thinking with your business.

Sure. So let me -- I'll start on Disney then first. I don't think anyone would deny. It's an amazing company, an amazing content lineup. We have been in touch with Disney for -- since we've launched the platform in 2017, specifically the virtual MVPD platform. We were a soccer service before then, which launched in 2015. But yes, it's great content. We're in touch with them all the time. But as I've said many times, there are -- we are very disciplined as a company. And you can see that just through -- and you'll see that shortly as we continue to file our Qs and start doing some of these calls more broadly. Again, very disciplined company. So we have been of the view that we need to grow first and then do deals as we grow because these are very expensive deals. As you can imagine, it's very easy to be underwater, which I'm sure you know from just some of the research you've done on other publicly traded companies.

We've run a few Excel analyses on it. Yes.

Yes. I'm sure. Look, I'm very excited to say that we, at least in 2020, are not gross margin negative. That is a very important point that I'd like to make. There's -- I mean, I've heard myself many people say that these things are so far underwater, they'll never recover. Again, I can't -- I can only speak for what we do. It is a very challenging business. But if you can figure it out, it's a very solid business. It's a business that has many levers to pull and a lot of optionality, as I mentioned to you, in terms of advertising and subscription revenue and attachment rates and things like that. But on the content side, as I said, we collect 21 billion data points. We've done a great job growing and growth, obviously, has not been the key. We've been really focused on doing the right things, setting out the foundation for the company for its growth stage, which now, as I said, since we're margin positive, that's something we'll be focused on going forward. And so as for the content partners, we're constantly optimizing. That refers to all content partners. We've gone through one renewal cycle already, which we're very happy with. Our partners have seemed to be very happy with our renewals as well. And it's -- we're going to -- you're going to see a lot more of this. I think unlike cable, where you got to have everything, I'm of the view that you only need about 70% of the gross rating points. There isn't anybody out there, any consumer out there that watches every network or every broadcast network. And so one of the beautiful things about streaming is that once you find your customer base, your demographic, you start to hone in on that group. And we would love to have every piece of content, but it's clearly not realistic or else we'd be at the $120, $110 price point. So it's something that's going to continue to be optimized over the next 24 to 36 months. And I think that what you could see in the virtual MVPD space, which is the live linear pay-TV bundles, is that as they continue -- I mean, look at the ones that are performing best are the ones that have the greatest breadth of content. And I think over time, there could be additional business opportunities, business models where maybe we're charging for data or some other type of relationships. Again, I'm talking about fast forward, maybe 2, 3, 4, 5 years from now. And there might be some mutually interesting opportunities as we work together. So again, this is a work-in-progress. There's no hard feelings on either side, I mean, business is business. And we're looking to build the company over the next 10 to 12 years to be a leading player in the space. So making mistakes early, as you mentioned around Sony, could be very dangerous. And so we've taken a disciplined approach. But I can assure you, we're speaking with every media company and content partner out there regularly. And so as things progress, there'll be partners that come in, partners that come out, as you've recently seen, and obviously, that's monitored very closely on a monthly basis.

And so I think that some of the things you've highlighted here is the -- for better or for worse, the flexibility of the product means the programming lineup is going to be more flexible than what we've seen from traditional packages, where it is a little bit more one size fits all and not that we -- of course, we have blackouts happen and things like that and drops do happen, but there isn't a lot of differentiation in terms of the product lineup. And I think you're saying that, that's important. And even your own product may change back and forth as a result of that. Your estimation that's...

That's optimizations, just like A/B testing. You test -- and by the way, it keeps everybody honest. This is about customers first, consumers first. And with big bundles, everyone has to have everything. When you -- if you're sitting in a Altice household in New York, and you wanted to switch to files, the first thing that doesn't come to mind is, I wonder if they have this channel because everybody has the same exact channel lineup. In the sort of virtual MVPD space, somebody may have a broadcaster, somebody may not. Somebody may have an RSN, somebody may not. So -- or some networks are available, and some are not. So there's some work that has to be done. And so that's why I keep saying it's important to note that these things are -- we're so early in the game. And we're still continuing to optimize. But at the same time, this is the best thing for the consumer because it forces companies -- because remember, these deals are 3 years. They're not for 2 or 3 years, no one's doing 10-year deals anymore. No distributor or and no content partner wants to do a deal that long. And so with that, everyone is forced to, a, build a better product, right? Because that's how you lure consumers in. And on the media side, if you want to be part of a bundle, you're going to have to provide a hit quality content, right? If you don't, you can't just hide like -- you hid in the 200-plus channel lineups. You're going to have to deliver value because it's a market that is quite tight. And the data is available in real time. And you also have your own products out there, so we know how to price them. So all of these things are actually much, much better for the consumer.